Veritone, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial amounts below are in millions of dollars unless stated otherwise. Veritone provides AI software and services through its aiWARE platform, hiring solutions, advertising services, and content licensing.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $35.1 | $37.2 | $93.4 | $105.8 |
| Operating loss | $(23.1) | $(3.6) | $(74.8) | $(28.0) |
| Net loss | $(24.5) | $(4.9) | $(70.8) | $(30.3) |
| Non-GAAP gross margin | 79.5% | 80.9% | 76.7% | 80.4% |
| Non-GAAP net loss | $(7.9) | $(5.7) | $(30.5) | $(18.1) |
- Q3 revenue fell 5.5% year over year; nine-month revenue fell 11.8%. Software Products & Services revenue was $20.4 million in Q3 and $48.6 million year to date; Managed Services revenue was $14.8 million and $44.8 million, respectively.
- For the nine months, Commercial Enterprise revenue declined to $88.9 million from $103.2 million; Government & Regulated Industries revenue increased to $4.5 million from $2.7 million. Government & Regulated Industries software revenue grew 67% year over year.
- Q3 and year-to-date operating cash use was $48.1 million, versus $24.6 million in the comparable 2022 period. Investing cash use was $53.7 million, primarily for Broadbean; financing cash use was $10.5 million. Cash, cash equivalents and restricted cash declined $112.3 million to $72.9 million.
- At September 30, cash and cash equivalents were $72.1 million, including $58.0 million received from advertising customers for future vendor payments. Current assets were $161.4 million and current liabilities were $186.2 million; stockholders’ equity was $18.7 million.
- Convertible notes had $141.25 million principal outstanding, due November 2026, with a 1.75% coupon; their balance-sheet carrying value was $138.4 million. The company had not drawn on its $30 million receivables-backed credit facility at quarter-end.
Material changes and unusual items
- Q3 general and administrative expense increased to $21.1 million from $2.5 million. The comparison reflects a $14.3 million non-cash benefit from a contingent-consideration fair-value change recorded in Q3 2022; 2023 expense also included acquisition and due diligence costs. Year-to-date G&A was $57.5 million, up from $27.1 million.
- Veritone acquired Broadbean in June 2023 for preliminary cash consideration of $53.2 million. Broadbean contributed $10.5 million of revenue and $2.0 million of net income from acquisition through September 30. The purchase-price allocation remains preliminary.
- The June sale of the energy group generated a $2.6 million pre-tax gain. Consideration included GridBeyond preference shares valued at approximately $2.0 million and cash; the divestiture was not treated as discontinued operations.
- The company recorded immaterial out-of-period adjustments for historical foreign-currency consolidation errors in Q3. It said the adjustments did not materially affect previously issued financial statements or the current interim statements.
Outlook, risks and contingencies
- Management said that, without additional liquidity, the company would require additional funds to continue operations over the next 12 months. It expected cash, potential borrowing under the receivables facility, or proceeds from the proposed term loan—if completed—to cover anticipated needs. The filing does not provide numerical revenue or earnings guidance.
- On November 7, 2023, after quarter-end, Veritone signed a commitment letter for a $77.5 million senior secured term loan, expected to close in Q4 subject to conditions. Proceeds were intended partly to repurchase $50 million principal of notes held by lenders for $37.5 million, with the remainder for corporate purposes and fees. Proposed terms include interest at Term SOFR plus 8.50% (with a 3.00% SOFR floor), quarterly amortization beginning June 2024, and a $15 million minimum unrestricted-cash covenant. Closing was conditional, including a requirement for at least $55 million of unrestricted cash immediately before funding; the commitment would expire December 15, 2023 if not consummated.
- The term loan would be secured by substantially all assets and would include warrants for up to 3,008,540 shares at $2.576 per share. Certain repayments could be made in stock, creating potential dilution. Management expected the loan to replace the existing credit facility.
- Management reported more than $24 million of net annualized cost reductions executed by September 30, exceeding the initial $12–$15 million target for 2023. It said it expected to begin generating non-GAAP profits in the foreseeable future; this is not a quantified forecast.
- Customer concentration remains a risk: Amazon represented approximately 12% of nine-month 2023 revenue, versus 25% in the prior-year period, following reduced hiring-solutions usage. Management cited weaker hiring and advertising demand, macroeconomic uncertainty, long government sales cycles, seasonality, and disruption from the war in Israel, including employee conscription.
- Software Products & Services customers numbered 3,536 at quarter-end, down 7% on a pro forma year-over-year basis; management attributed much of the decline to planned migration of legacy CareerBuilder customers. Consumption-based annual recurring revenue also declined, from $67.2 million at Q1 2023 to $50.8 million at Q3.
- Disclosure controls were deemed ineffective as of September 30. The filing identifies material weaknesses in foreign-currency consolidation controls and IT general controls over system access and change management. No resulting material misstatement was identified; remediation was ongoing.
- Management reported no legal proceedings expected to have a material adverse effect.
Investor verification priorities
- Confirm whether the committed term loan closed, its final terms, and whether the existing credit facility was replaced.
- Track cash burn, unrestricted cash available after customer-related vendor obligations, and borrowing availability under any receivables facility.
- Assess the trend in revenue and customer usage, especially Amazon exposure, consumption-based software revenue, and advertising demand.
- Verify progress toward remediation of the disclosed material weaknesses and whether disclosure controls become effective.
- Review final Broadbean purchase accounting, integration results, and the impact of the loan warrants and any stock-settled payments on dilution.